First-time borrowers often have many questions regarding loans and the loan application process. They look up their queries online or seek advice from their friends and family before applying for their first loans.
Unfortunately, not all sources of information are always accurate, and first-time borrowers may find themselves receiving faulty information. These myths may inculcate bad financing habits in soon-to-be-borrowers which affect their future.
The best way to protect yourself from the wrong information is to get the right information. In this article, we’ve debunked five of the most prevalent myths about personal financing. Take a look.
Personal financing is only for employed or salaried people
The first myth about personal loans is that only people employed in an organisation or having a salary account are eligible for the bank loan. However, this is far from the truth. People who are self-employed or who work as freelancers can also take up the personal loan.
Personal financing is granted to anyone who has the assets or income to repay the loan. This income can be either in the form of a salary or in the form of business profits/revenues/assets.
Australian lenders also allow unemployed individuals to take personal loans. In order to do this, you must show that you have some form of income-generating asset or Centrelink payments, which you can use to secure the loan. You can even ask your parents, friends or partner/spouse to act as a guarantor for your loan.
Traditional loans are the only personal finance solution available
One of the biggest misconceptions about personal financing is that bank loans are the only form of personal finance available. This isn’t true. There are many types of financing that individuals can take.
A line of credit, for example, is an excellent personal financing measure. The line of credit gives borrowers quick and easy access to money, as and when they need them for an indefinite period of time.
This financing grants you the freedom to utilise the credit in any way you want, without seeking the lender’s permission, while making the lowest minimum-payments. This makes a line of credit better than personal loans. At &Solved, we can offer highly competitive rates for lines of credit applicants. Contact us for details.
In addition to this, borrowers can also use a credit card for personal financing.
Personal loans take a very long time to get approved
Another myth making the rounds is that personal loans and lines of credit take weeks to approve and that the process is just long, complicated and tedious.
Both bank loans and lines of credit take just 1-2 days to approve, provided your credit rating is good. In Australia, an Equifax score above 622 is enough to get your personal loan approved in a few days.
The loan application process isn’t that stressful; of all types of financing, personal financing requires the least amount of checks. All you need is your bank statement, proof of income and personal identification in order to be eligible for the finance. If you don’t have enough funds yourself, you can provide your guarantor’s documents as evidence.
If your Equifax score is lower than 622, it may take between 35 and 40 days to have your personal finance application approved.
Taking a personal loan will lower your credit score
Many first-time borrowers wrongly believe that loans ruin their credit rating. This is only true if you take the loan and fail to make your payments on time. Then your rating agency marks you down for this, which is an indication to lenders that you can’t be trusted with their money.
But if you do repay your loans and lines of credit without defaulting, then your credit rating improves. This is because, by paying-back your personal loan on time, you’re proving to lenders just how responsible you are with their money. When your credit score increases, it becomes easier for you to seek personal loans again in the future.
You can’t use your personal loan for your business
Many borrowers believe that a personal loan is a type of financing that can only be used for personal expenditures. This isn’t true. In reality, lenders don’t care what you’re using your personal finances for, provided you’re doing so within the letter of the law.
When applying for a line of credit or bank loan, you don’t need to specify that you’re planning to use this amount for your business. If you need some cash to, say, purchase additional raw materials or sanction more vehicles for your delivery department or improve the operations of your existing business, then a personal loan or line of credit is fine.
All you need to do is prove to lenders that you have the personal assets (not attached to your business) to pay-back the personal finance within the stipulated time. If you would like to know more information about borrowing a line of credit, contact &Solved today.